Can Ella Cafe collect taxes from the franchisee in the same manner as royalty fees?
Ella_Cafe Franchise · 2024 FDDAnswer from 2024 FDD Document
In addition to all other payments provided for in this Agreement, Franchisee must pay Franchisor and its Affiliates and all of Franchisee's third-party vendors, suppliers, and landlord promptly when due:
(i) All amounts advanced by Franchisor or which Franchisor has paid, or for which it has become obligated to pay on Franchisee's behalf for any reason whatsoever.
(ii) The amount of all sales taxes, use taxes, personal property taxes, and similar taxes, which are or may be imposed upon Franchisee and required to be collected or paid by Franchisee (a) because of Franchisee's Gross Sales, or (b) because of Initial Franchise Fees, Royalty Fees, or advertising fees (and Franchisee Advertising Co-op dues, if any) collected by Franchisor from Franchisee (but excluding ordinary income taxes).
Franchisor, in its discretion, may collect the taxes in the same manner as Royalty Fees are collected and promptly pay the tax collections to the appropriate governmental authority; provided, however, that unless Franchisor so elects, it will be Franchisee's responsibility to pay all sales, use, or other taxes now or hereinafter imposed by any governmental authorities on Initial Franchise Fees, Royalty Fees, and advertising fees.
Source: Item 22 — CONTRACTS (FDD page 50)
What This Means (2024 FDD)
According to Ella Cafe's 2024 Franchise Disclosure Document, Ella Cafe has the option to collect certain taxes from franchisees in the same manner as it collects royalty fees. Specifically, Ella Cafe may collect sales taxes, use taxes, personal property taxes, and similar taxes that are imposed on the franchisee. These taxes must be related to the franchisee's gross sales or due to the initial franchise fee, royalty fees, or advertising fees collected by Ella Cafe.
Ella Cafe, at its discretion, can choose to collect these taxes in the same way it collects royalty fees and then remit these collections to the appropriate governmental authority. However, if Ella Cafe does not elect to do so, it remains the franchisee's responsibility to pay all applicable sales, use, and other taxes imposed by governmental authorities on the initial franchise fee, royalty fees, and advertising fees.
This means that as a prospective Ella Cafe franchisee, you should be prepared for the possibility that Ella Cafe will handle the collection and payment of these taxes on your behalf, simplifying the process for you. However, you should also be aware that if Ella Cafe does not choose to do so, you will be responsible for managing and paying these taxes yourself. It is important to clarify with Ella Cafe during your due diligence whether they intend to collect taxes in this manner to properly plan for your tax obligations.